29 Apr 2022
Posted in Thematic Research
Didi Chuxing struggles to find safe haven amid strict Chinese regulations, says GlobalData
Didi Chuxing is facing a multifaceted regulatory challenge. The company announced plans to de-list from the US in December 2021, only five months after successfully listing on the New York Stock Exchange. But as China imposes stricter data security regulations, Didi is now struggling to list in Hong Kong, says GlobalData, a leading data and analytics company.
Chinese technology, media, and telecom (TMT) companies previously chose to list in the US to achieve greater liquidity and attract a broader investor base. According to GlobalData, 101 Chinese companies were listed on US exchanges between 2018 and 2021. In terms of IPO proceeds, Didi Chuxing’s New York listing in June 2021 was the biggest cross border listing, when it raised $4.4bn.
Swati Verma, Associate Project Manager of Thematic Research at GlobalData, comments: “While cross-border listings are attractive, companies in foreign markets face additional regulatory challenges amid an uncertain geopolitical environment. The US regulations require companies to prove that they are not owned or controlled by a foreign government and to allow the US Public Accounting Oversight Board to review their financial audits. These regulations have forced numerous Chinese players including Alibaba, JD.com, Baidu, and Bilibili to return home.”
At the same time, China has also been imposing a new set of data security regulations, which are impacting both companies listed in China and on foreign exchanges.
Verma adds: “Didi already faced this challenge after its NYSE listing as the Cyberspace Administration of China (CAC), the Chinese agency responsible for data security, raised concerns about the leakage of sensitive data in the US. This was one of the factors behind its decision to list in Hong Kong. However, until these concerns are addressed, and any penalties agreed, Didi will be unable to proceed with its planned HK listing, leaving the company in limbo.”
The listing process in China is also getting stricter and Didi is struggling to find a safe haven. China is imposing cybersecurity regulations for all listings and Didi will need to comply with data security rules before it lists on its home market.
Verma concludes: “China is also tightening controls over ride-hailing businesses, which will make it harder for Didi to earn profits, another factor that could block its planned listing in HK. The company’s valuation had been slashed by 88% since it first traded, and it is interesting to see how it manages to overcome these regulatory headwinds.”